Abu Dhabi's economic growth is not stopping. This is confirmed by the rating agency Standard & Poor's (S&P). According to data released in recent days, the economic growth of the small Gulf country will reach 2.5% in the next four years, benefiting from the increase in oil production and prices. The economy of Abu Dhabi is closely linked to the production and export of oil. According to the S&P report, 50% of its gross domestic product and 90% of central government profits depend on the oil and gas sector as a whole. Despite some attempts to diversify the local economy, the country will remain largely dependent on the oil market in the coming years.

The biggest and richest of the seven emirates that make up the United Arab Emirates (UAE) could be the driving force behind the UAE economy, leading to 2% growth in 2019 after the 1.8% growth achieved last year. The growth forecasts announced in the S&P report are 2.5% in 2020 and 2021, followed by 3% in 2022. That is if the oil price parameters considered by the rating agency of 60 dollars a barrel for 2019 and 2020, dropping to to 55 dollars per barrel in 2021, are respected.

However, not all the data are positive. On May 29 this year, the Central Bank of the UAE announced less brilliant figures than forecast by the International Monetary Fund (IMF) for the third biggest oil producer among the members of the Organization of Petroleum Exporting Countries (OPEC). Growth in the UAE’s oil industry is expected to miss the targets set by the IMF and only reach 2.7%: one percentage point lower than the expected 3.7%. But the real surprise came from the non-oil sector, where growth will stall at 1.8% compared to the 3.4% expected by the IMF reports.

The main concern for the local non-oil sector is the support given by Abu Dhabi to the hard line taken against Iran by the United States, with its unilateral exit from the 2015 Vienna agreement on nuclear power, confirmed by President Donald Trump last May, along with the imposition of new sanctions. And so, on the one hand, three attacks on oil installations and a Saudi gas pipeline in Fujairah showed Abu Dhabi's security vulnerabilities in the event of the outbreak of a conflict in the Strait of Hormuz. On the other hand, non-oil trade between Iran and the UAE amounted to 16.83 billion dollars in 2018. As a result of the new US sanctions, Iranian companies are abandoning the UAE in favor of Oman, Qatar and Turkey, creating considerable tensions between Abu Dhabi and Dubai, which has so far been at the center of trade between Tehran and the UAE. However, recent statements by US Secretary of State Mike Pompeo, apparently paving the way for new negotiations between the United States and Iran, may also have effects on bilateral relations between Iran and the Emirates.  

S&P has confirmed the AA rating for Abu Dhabi, emphasizing the economic stability of the Emirate. In particular, the rating agency referred to the great commitment to investment in the country on the part of the Abu Dhabi Investment Authority (ADIA) amounting on average to around 250% of the gross domestic product in the period between 2019 and 2020.

If, as expected, Abu Dhabi is able to finance its tax deficit of 4% of GDP and Eurobond repayments, the wealthy emirate’s public debt will remain stable at no more than 7% of GDP in 2022. Furthermore, according to the report published by S&P, the emirate’s government is not expected to issue bonds in the next two years pending decisions in this respect by the federal government of the UAE.  

While Iran moves away, New Delhi moves closer. India continues to focus heavily on trade with the Gulf countries and in particular with Dubai and Abu Dhabi. In recent days, the Indian airline IndiGo inaugurated two flights a day from New Delhi and Mumbai to Abu Dhabi. As confirmed by the local authorities, the increased number of connections shows a strong interest in strengthening the interconnection between India and the United Arab Emirates, particularly in the areas of trade and tourism.

Abu Dhabi's economic growth is driving the economy of the United Arab Emirates. Oil price increases will have a long-term positive effect on an economy highly dependent on the oil sector. The non-oil sector in Abu Dhabi is worried and expected to suffer a setback due to the general tightening of bilateral trade relations between Iran and the United States and between Iran and the UAE. However, major investments and debt containment mean international financial bodies are hopeful about growth in the local economy, above all thanks to the performance of the global oil market.

The author: Giuseppe Acconcia 

Giuseppe Acconcia is an award-winning journalist and researcher focusing on the Middle East (London and Bocconi University). Among other publications, he contributed to The Independent, Al-Ahram, Xinhua News Agency and openDemocracy. He has interviewed former Egyptian President Mohamed Morsi, the Arab League Secretary General Nabil Elaraby, philosophers Samir Amin, Noam Chomsky and Nobel Peace Prize Shirin Ebadi. He has published reportages from the Syrian Kurdistan, Iran, Egypt, Libya and the United Kingdom. He graduated at the School of Oriental and African Studies (SOAS) in London writing a dissertation on the role of the military in politics in Egypt, Syria and Iraq. His articles and scientific publications have been translated into French, Spanish, Turkish, Arabic and Chinese. He taught at the American University in Cairo, he worked as a researcher on North Africa and the Middle East, for the Sakharov Prize and the Euro-Mediterranean cooperation. He is the author of Egypt. Military Democracy (Exorma, 2014), Pictures from Gihan (Muta Imago, 2013), The Egyptian Spring (Infinito, 2012) and A two days winter (Fara, 2007).